Author: Bob Mendes

Bob Mendes represents all of Nashville as a Council-At-Large member of Nashville’s Metro Council. He is Chair of the Council’s Charter Revision Committee, a member of the Metropolitan Audit Committee, and a member of the Council’s Budget & Finance Committee, Rules & Confirmations Committee, and Ad Hoc Affordable Housing Committee. Bob also practices business law at Waypoint Law PLLC. Bob’s complete bio is here. You can follow Bob @mendesbob.

Transit/Affordability Taskforce – 2 Months Later

Transit is about more than trains and buses. It is also about how high-capacity transit corridors will interact with neighbors, residents, and existing small businesses. Last fall, the Mayor appointed a Transit & Affordability Taskforce to address these issues. The taskforce’s final report and recommendations came out on January 10, 2018. You can find it here.

I promised the housing advocates on the taskforce that I would help with after-the-fact accountability.

Fortunately, there was always going to be an early opportunity for Metro to implement the recommendations. In the next few Council meetings, the Council will see legislation to create a Transit-Oriented Redevelopment District (or “TOD”) in Donelson. I have seen a draft of the written redevelopment plan, which has already been approved by the MDHA board, and I have seen an early draft of the legislation.

This Donelson TOD is critically important. It will be used as a template for transit-oriented development on every major transit corridor in Nashville. The administration and transit planners intend for there to be a TOD district along every transit corridor and at every major transit hub. The long-term transit plan expressly intends to use TOD districts to capture a portion of increasing property taxes to pay for the necessary major infrastructure and to spur private development along the transit corridors. So while the referendum has not yet passed, this Donelson TOD will lay the groundwork for how transit-related development will work throughout the city.

This is a good time to take a first look at how Metro is doing with some of the taskforce recommendations. I will list some of the recommendations and describe the status of implementing the recommendation:

Recommendation: “Full neighborhood assessment of affordable housing stock and housing-related wrap-around services before transit development begins…This pre-transit development assessment must not be limited to just the 0.25 miles on either side of the corridor. Instead, the assessment must take into account typical neighborhood boundaries.”

Status: No action taken.

Recommendation: After conducting the full neighborhood assessment of affordable housing, firm goals for preserving and creating affordably housing units should be established: “Once there is enough information, firm goals should be established. All policies and tools must work in concert to achieve these minimum numbers.”

Status: No action taken. No goals for the number of affordable unit to preserve and build have been set.

Recommendation: “For funding and building affordable housing in TODs, Metro and MDHA should seek to reduce or eliminate the current structure where there are two separate decision-making tracks – one with Metro and one with MDHA.”

Status: No action taken. This is a big deal. In existing economic redevelopment districts (like around Rolling Mill Hill), MDHA has the full power to set the level of affordable housing (even 0%) for each building getting tax increment financing in the district. These districts last for 30 years, and Metro has no say on issues like this during the 30 years. Remember that MDHA is not part of the Metro government (because it is created separately under state law) and does not have to listen to the Mayor or the Council when deciding on the level of affordability to require in a building. As the train is leaving the station on transit-oriented development, we need a new model about how Metro and MDHA work together to make sure Metro gets the final say on how these things will work on our transit corridors over the next 30 years.  (This is not a knock on any of the people in and around MDHA or its board. My objection here is about the process. MDHA is simply not a part of the Metro government, and its board is not elected. It doesn’t make sense to hand over so much final decision-making to an outside authority for all of the real estate around all of the important transit hubs on all of our transit corridors for multiple decades. We can do better than that.)

Recommendation: “In advance of the anticipated May 2018 transit referendum, Metro should make a public statement committing to the timely creation of a community land bank and community land trust, describing the timeline for creating these, and describing anticipated funding levels.”

Status: No action taken regarding a community land bank. For a community land trust, the administration has said that one will be funded in fiscal year 2020. No information has been provided about a funding amount.

Recommendation: “A resounding recommendation from all committees was the need for a dedicated public funding source for both affordable transit-related housing and small business space development and support. The new public funding should be an amount equivalent to at least 2% of the expected capital project costs for the Let’s Move Nashville program (which is proposed to be approximately $5.4B in 2017 uninflated dollars). This new resource should be designed so that each dollar of public funding is leveraged with other funding sources with a goal of a 3:1 leverage ratio. This is in addition to any pre-existing levels of affordable housing funding, and also in addition to any financing funded by tax increment financing (TIF).”

Status: No action taken. No information has been provided about accomplishing this goal.

Recommendation: Because we are trying to build housing stock along transit corridors for Nashville residents and not visitors, the recommendation was: “No investor-owned (Types 2 and 3) short-term rentals in TODs.”

Status: No action taken. This restriction isn’t in any of the documents I have seen so far. (And, yes, it would be legal for Metro to withhold permission there to be short-term rentals in projects that are funded by our property tax dollars through tax increment financing.)

I recognize that there are powerful forces pushing all of us on the referendum. This post isn’t meant to comment on that. My goal is to provide some early feedback that Metro is not yet doing what it will take to succeed in maintaining and building our neighborhoods and meaningful affordable housing around transit development.

I also recognize that it is only a few months since the Mayor’ taskforce released its recommendation to her. But life is coming at Nashville fast, and we can’t afford to be wait. The legislation for the Donelson TOD is still being pushed forward. I hope the administration can find the time and resources to implement these recommendations.

What’s next for the transit referendum?

As Nashville digests yesterday’s news about the Mayor, many people are asking what it might mean for the transit referendum. The Council is set to vote on our third and final reading on February 6. If we pass the bill, then the transit plan and the proposed new tax surcharges will be on the ballot for a public referendum on May 1. If we delay at all, May 1 will be impossible and advocates would have to decide whether to try to get the referendum on the ballot for either the August or November 2018 election.

I don’t have a great answer for what the impact on transit will be. For me, the starting point is that the Mayor has been the public face of the drive toward passing a transit referendum on May 1. After yesterday, if she can regain the public’s trust, it will take time. The question is whether a May 1 transit referendum can succeed during this period of diminished trust and confidence in the Mayor.

I have my doubts about whether it can pass in May – I just don’t know. If the Mayor’s indiscretion is in the news through early voting and election day on May 1, it seems like it would be hard for the referendum to pass. At a minimum, I think everyone would have to agree that it would be an uphill battle if the transit conversation is competing for airtime every week with investigations and inquiries. The risk of the transit referendum failing in this situation seems high and should make anyone consider pushing it off to an August or November 2018 election.

On the other hand, pushing off the referendum wouldn’t necessarily foster a better environment for the public to consider whether to adopt the transit plan and the proposed new tax surcharges. It is hard to predict whether a weakened administration would hamper a vote later in 2018 too, or if the delay would allow enough time to clear the air so more attention could be paid to the referendum. There just isn’t clarity about how this would play out.

So the choices are to have a May referendum with the face of the transit campaign weakened and working on rebuilding trust in the stretch run up to the election, or delay the referendum and hope circumstances will allow Nashville to focus more on the transit referendum. Which would you pick?

On top of this, I have been revisiting my thoughts about the transit plan itself. My earlier posts are here and here. For those of you that have read them, you know that some parts of the transit financial plan have given me pause. For example , it still has not been well discussed in the media that the transit plan assumes paying interest only until 2032 on $3B in revenue bonds. After that, principal gets added to the payments in increments each year through 2039. From 2040 to 2060, the plan calls for level principal payments of $226 million each. The reason the principal payments increase over time before leveling off for the last 20 years is because projected revenue from the new tax surcharges won’t support full principal and interest payments until 2040. In turn, if there isn’t enough revenue generated to make full principal and interest payments until 2040, this begs questions about how we might pay for a next phase if we were to decide in the 2020s that we would like to extend a rail line to the county line.

The question I started with was how the Mayor’s situation might impact the transit referendum bill the Council is considering on February 6. At this point, I don’t know. I’m going to have to see how the next several days play out.

Where to start?

This evening, Mayor Barry acknowledged publicly that she had an extramarital affair with her now former security detail leader. It’s shocking news.

As an At-Large member of the Metro Council, I think it’s my job to communicate the feelings of the county as I understand them. Because the news is so new, maybe tonight’s sentiments will be wrong and won’t stand the test of time (or even a few days). But I don’t think it does any good to remain silent.

My first reaction was to think about the various people and families involved. There must be pain and difficulty all around this evening. That’s a shame. I feel bad for the families that are involved.

Beyond that, the two things people are talking to me about are whether this impacts how we should think about the Mayor as a person, and whether this impacts how we should think of her as the city’s leader.

First, as a person, I don’t know the circumstances of the private lives (to the extent they are private) of the people involved. I can’t judge them.

I do want to mention the reactions from my 14 and 16 year old daughters about the news. Of course, due to other world social media skills, kids these days know everything at least as quickly as adults do. One said, “I’m mad. I liked her.” The other said, “Odd. Surprising.” I counseled them to not judge. The bottom line is that a role model was diminished today.

As for the Mayor’s ability to lead, I think that’s going to be complicated. As she noted in her comments to the media today, there are probably more bad days ahead on this.

I think the idea that the travel was totally okay because she needed security anyway is not very satisfying without knowing more. As a friend of mine texted me earlier this evening, “The misuse of tax funds and trust issues are big. Two consenting adults or not.” I don’t know enough yet to comment on whether there was any misuse of tax funds. But the Mayor has already acknowledged that the situation shows poor judgment — she said, “I knew my actions could cause damage to my office and the ones I loved, but I did it anyway.” And her press statement also explained that she’s disappointed in herself. We’re disappointed too.

More broadly, the question is about what this significant example of admitted poor judgment means for Nashville? For transit? For soccer? I have heard a few argue that the merits of the projects remain unchanged…so there should be no impact. Many more feel that the city’s trust and confidence in her is deeply tied into her administration’s objectives.

Just yesterday, for example, Joey Garrison posted a short video clip of the Mayor responding to a question about whether the city should be committing to the full transit price tag before knowing the details about exactly what will be built and when. The Mayor’s response, and I am paraphrasing some of this, was that, yes, it is a lot of money and there are details to work out later, but everyone will have to make a “little leap of faith.” Well, that answer yesterday captures the issue. Will questions about trust and confidence keep people from making that leap of faith? Will the Mayor be able to repair the trust relationship with voters before a transit referendum takes place? Will the Mayor be able to continue to be the face of the pro-transit advocacy efforts?

There are also a lot of questions about the use of government resources. Citizens will also want to know “who knew?” Did the rest of her security detail know? These are all fair and expected questions. At the press conference today, the Mayor apparently said that her office would make all records available. I expect multiple people in government and in media will take her up on that. As one of two Council members on the Metro Audit Committee, I think it is appropriate for Metro Audit to be involved in this process. This evening, I asked the Metro Audit Department to review today’s media reports and propose a scope of inquiry about the expense questions that are being raised. I imagine the Mayor is expecting this to happen.

I am definitely asking questions more than I am giving answers. But again, for tonight, I just want to express what I am hearing from our neighbors. I am sure this situation will continue to develop in the coming days.

Finally, to comment more specifically on transit…the Council will vote on February 6 about whether to put the transit referendum on the ballot on May 1, or not. I assume that the very well funded PACs behind the referendum push are going to do some quick polling before next Tuesday’s vote to get some sense of what it means when the face of your campaign has this sort of news about 70 days before early voting. I don’t know the answer. But I would urge that, if the polling looks weak, don’t hide that fact. Act on it. Share the information.

I’ll update my thoughts if necessary. Thanks, everyone. This hasn’t been a great day, but we’ll be okay. Nashville is stronger than the news of any one day.

The $5.4B is for new rail AND bus capital costs

This week, I have been trying to clean up some discrepancies and debates that are going on about the proposed transit plan. My earlier posts are here and here.

One argument people are having is about whether the $5.4 billion listed in the referendum language refers to light rail capital costs only, or to light rail AND bus capital costs. This debate arises from page 49 of the Transit Improvement Program.

On page 49, there are two different numbers that are both close to $5.4 billion. You’ll see that there are two columns…the first shows the present value of expenses in 2017 dollars, and the second shows the amounts to be spent in the “YOE” or “year of expenditure.” So, for example, in the “Music City Star” row, it says $30 million in the first column and $40 million in the second. This means that, after taking expected inflation into account, the total amount of checks to be written for the Music City Star over 15 years will be $40 million. But, in today’s money, this is only $30 million.

Here’s where the confusion starts. The cost of rail corridor improvements in the “YOE” column is $5.475B (which would actually round to $5.5B).  And separately, the present value of the cost of both rail and bus improvements in the “$ 2017” column is $5.354B (which rounds to $5.4B). Both of these numbers are very close to $5.4B and have created confusion.

The referendum language uses $5.354B, which represents the present value in 2017 dollars of both the rail and bus capital improvements.

One of the talking points filtering around social media and also in some live conversations I have had is that the $5.4B number in the referendum is supposedly misleading because it only includes the rail improvements and not the bus system improvements. I think this talking point started innocently from confusion over two numbers that are coincidentally similar. But, the referendum’s use of $5.354B is accurate and definitely refers to the present value of rail and bus capital improvements.

Getting to the bottom of the debate over $5.4B versus $8.9B

There has been some debate about whether the upcoming transit referendum language should include just the capital cost of the transit plan in 2017 dollars ($5,354,000,000) or also include additional information. In particular, one Council member has suggested adding language to the referendum stating that the “total cost for the transit system” is $8,951,062,000. The debate over this is slipping into a bit of name-calling. Here’s my take.

Before getting into the meat of this, there are three things to consider while you read this. First, debt is not inherently bad. Debt that can be reasonably managed to buy an asset you need is good. Debt incurred at exorbitant rates from a loan shark for a luxury item is bad. There are lots of shades of gray in between. Deciding on whether debt is good or bad requires balancing how badly you need the asset, the cost of paying the debt over time, and whether you can afford it once you consider all your other annual/monthly obligations. In nearly any situation, focusing on either the initial purchase price or the total amount of checks you will write over time to pay the debt is distracting. The question is about need, the cost to service the debt, and how that fits in with your budget.

Second, keep in mind that the 15 year length of the proposed transit plan is somewhat arbitrary. The State IMPROVE Act requires Metro to have the Comptroller and an independent CPA agree that the math in our transit plan adds up correctly. I understand that the Comptroller dictated to Metro that 15 years was the amount of information to present and get approved by the CPA firm. To be clear, the transit system will NOT be paid for in 15 years. The plan anticipates paying revenue bonds all the way through 2060.

Third, the State IMPROVE Act is also very clear that the referendum language has to be 250 words or less, and it must include the initial cost of the plan, as well as the recurring cost. This is pretty precise — it requires disclosing the initial capital investment and the expected annual operating losses. (Remember literally all transit systems lose money annually — that’s why it is important to disclose the expected recurring costs.)

Also, check out my post last night about transit. Especially the parts about financing provide context for thinking about this issue.

Okay — back to the $5.4B versus $8.9B argument…

To start, nobody has hid the ball on either number. Both numbers are in the Transit Improvement Program. You can read pages 46 to 55 of the Transit Improvement Program…you’ll see both discussed in detail. (I would concede to transit critics that the glossy pitch materials focus on the $5.4B number. But, the $8.9B number is clearly presented in the financial information in the Transit Improvement Program.)

Also, aside from not being part of what is required by the State IMPROVE Act, the proposed language saying that the total cost of the transit plan will be $8.9B is not accurate. It would be accurate to say that the total amount of checks that will be written by the end of 2032 will be $8.9B. But that’s not the same as the total cost of the transit plan. To get the total on the amount of checks that will be written to pay for the proposed transit plan, you’d have to include all of the principal and interest payments on the revenue bonds through 2060. And, then you’d have to decide whether you also wanted to keep including annual operating expenses for this additional 28 years. I’m not going to do the math, but that “total amount of checks we’ll write” number gets bigger over time through 2060.

So…the factually accurate statements would be:

  • “The capital cost of the program is estimated to have a present day value of $5,354,000,000” — this is what is in the referendum.
  • “The total amount of checks to write through 2032 for the transit system is $8,951,062,000” — this would make clear that we were only talking about the first 15 years.
  • “The total amount of checks to write through 2060 for the transit system is <<<I’m not going to do the math, but it’s bigger that $8.9B>>>” — again, this would make clear what timeline we were talking about.

I strongly feel that we should leave the referendum with its current language (option #1). Having the referendum say $5.4B for capital costs in today’s dollars is consistent with the IMPROVE Act. Also, when deciding whether debt is “good” or “bad”, it just isn’t helpful to add up the total amount of checks you’ll write over time. The focus should be on need and annual affordability (and as discussed in last night’s post, how to pay for a next phase of construction). And finally, looking at the total amount of checks to write over a 15 year period is certainly not helpful in deciding whether to take on debt for the proposed transit system.

There are legitimate questions that people are asking in trying to understand the proposed sales tax structure and about affordability. My suggestion though is that focusing on the total amount of checks to write over many years is not how people typically think about whether debt is a useful tool.

Transit thoughts – 1/23/18

Last August, I put out a list of questions I would need answered in order to vote to put the transit initiative on the May 1 ballot. The proposed Transit Improvement Program answered all of these questions and more. So, I am voting to put the referendum on the ballot. Tonight we approved the referendum on 2nd reading. The 3rd and final reading will be on February 6.

I would like to go through some important details that haven’t been discussed thoroughly in public yet. I am going to start with some relatively simple details and then move to more complex funding issues:

  • Nomenclature: When the state enacted the IMPROVE Act, it authorized counties to create certain tax surcharges to fund an approved “Transit Improvement Program.” The 55 page document I link to above is Metro’s proposed Transit Improvement Program. That is the technical document that would be funded by the proposed set of new tax surcharges. From my perspective, the “Let’s Move Nashville” web site includes lots of interesting and necessary explanations, graphs, and details. But, technically, the only information that matters is the Transit Improvement Program. If you want to know what you are voting to fund, that 55 page document is what you should read.
  • What about federal funding?: Many people have asked what happens if the anticipated federal funding is not available. The first answer to this is that the proposed transit program assumes federal funding that is consistent with historic levels. If that level of funding is not available, we will have to find alternative funding (unlikely), or parts of the system could be scrapped (probably unlikely), or the system will take longer than the anticipated 15 years to build (most likely).
  • Are we locked into the plan or can it change?: Plans can change as years unfold. The question is to ask what approvals will be necessary to make changes. The best advice at this time is that relatively small changes (like the sequence rail lines are built) probably require little formal approval outside of annual budgeting hearings. At the other end of the spectrum, major additions or changes to the system described in the Transit Improvement Program will probably require an additional ballot referendum. In the middle, there might be gray area changes where it is not clear today what authority will be needed. For example, if a new rail line were proposed, but it was not going to use the new tax surcharges as a funding source, then that might not trigger an additional ballot referendum.
  • No general obligations bonds are anticipated: Multiple people have asked me whether Metro can afford the additional $3 billion in bond debt anticipated in the transit improvement program. People need to know that only revenue bonds supported by the new tax surcharge revenue are planned. No general obligation bonds are part of the transit improvement program.
  • The details about the revenue bonds are important: During the 15 year transit improvement program, the plan is to issue $3 billion in revenue bonds supported by the new tax surcharges. At the end of the 15 years, we will have only paid interest on these bonds. The full $3 billion in principal will still be due when the construction plan is complete in 2032. From 2032 to 2039, the amount of annual payments will increase from $166 million (2032) to $224 million (2039). Then from 2040 to 2060, the program calls for level principal and interest payments of $226 million per year.
  • Why do the revenue bond payments ratchet up through the 2030s and not level off until 2040?: The short answer is the revenue from the new tax surcharges is not expected to be high enough to support the full principal and interest payments on the $3 billion in revenue bonds until 2040. The revenue bond repayments will be “sculpted” to fit the expected tax revenue stream. If you have wondered why Metro isn’t building the light rail lines out to the county line from the start, this financial modeling about the expected tax revenue is the key to the answer. Please understand that I am not presenting this feature of the economics as “good” or “bad.” It is however something that informed voters should know about.
  • What happens when we want to expand the transit system?: First, it is important to know that the system is meant to be successful as designed. That said, it is also important to consider what happens if we want to expand the light rail system out to the county line in any direction. All of the previous four bullet points are important for this question — the big issues are about what it would take to approve a major addition to the system, and about whether there will be funds available to pay for a major addition. Here are the basic options to pay for a major additional line or a rail extension to the county line: (1) wait until the late 2030s when our growing city will generate enough sales tax revenue to pay for additional major capital transit improvements; (2) find a new funding source beyond what will be on the referendum in 2018; and (3) further “sculpt” new revenue bond issues to have payments more backloaded instead of having level principal and interest payments from 2040 to 2060.
  • How is Metro integrating transit planning with other important government functions?: If funded, the transit improvements over the next 15 years will be monumental. There are a lot of question about how transit development will impact affordable housing, small business, neighborhoods, sidewalks, parks, and greenways. To get a jump on this, the Mayor appointed a taskforce to look at issues related to transit and affordability. The taskforce delivered its recommendations to the Mayor on January 10. You can see a copy here.

On February 6, it is almost a certainty that the Metro Council will vote to put the Transit Improvement Program referendum on the May 1 ballot. I hope voters take the time to look at the full program. If you have any questions or comments, let me know at bob.mendes@nashville.gov.

STR transparency…

In the last few hours, I started getting this form email urging, for the first time, that Council members abstain on Bill -608. To be clear, it is very likely that any form email that we get opposing Bill -608 is drafted and spread primarily by industry lobbyists.

The email says there was a four hour meeting on Friday afternoon where new compromise proposals were floated. If that happened, the potential compromises haven’t been shared with the Council generally. I don’t know any more than what is in the form email.

Also, the form email calls -608 a ban on short-term rentals. The truth is that, if -608 were to pass, there would still be unlimited owner-occupied short term rentals, unlimited investor-owned short term rentals in buildings with 3 or more units, unlimited short term rentals downtown, and unlimited short term rentals in the Gulch. Yes, with -608, investor-owned short term rentals in traditional 1 and 2 unit homes in family neighborhoods would be phased out. But there is simply no way to call this a ban. Under -608, there would still be many, many short term rentals in Nashville.

For almost a year now, my position has been that I intend to support whatever short term rental bill the majority of district council members support. By definition, the district council members are closer to day-to-day short term rental issues than I am as At-Large member of the Council.

I believe that the majority of district council members support -608. My plan is to attend the Council Planning and Zoning Committee meeting tomorrow to get a better feel about this before deciding for sure how I’ll vote.

I’m posting this new industry form email this afternoon because it is irresponsible. While the form email is wrong in claiming that -608 is a ban, both sides of this issue have engaged in hyperbole. Maybe that’s just the way it goes with tough issues. My real objection is that the form industry email runs the risk of creating a self-fulfilling prophecy about state preemption. Under any view of the world, a law that allows unlimited short term rentals in owner occupied homes, high rise buildings, any building with 3 or more units, all through downtown, and the entire Gulch is not a ban. If it passes, it will reflect a family-friendly compromise that I would ask the state to respect and honor. This topic is hard enough without the industry going out of its way to invite state intervention.

Nashville General Hospital – 1/14/18 thoughts

Here are my Nov. 29, 2017 thoughts about NGH. My main thought then was that there were too many people with firm, preconceived ideas about the hospital’s future and not enough working together. I said:

There are too many chefs in the kitchen. I’ve been trying to stay relatively quiet about the hospital because there are already a whole lot of people who are actively pushing various  ideas about how to “save” the hospital. Unfortunately, most of the efforts are uncoordinated and there is not a basic agreement about what “save” means.

and

I don’t want to add to the “too many chefs” dynamic. That said, my number one wish this evening is that the Hospital Authority and the administration would find a way to be teammates. If they don’t, I’m concerned that we’re going to end up watching a fiery wreck.

A few weeks ago, in my year end wrap-up post, I added that I think it will take an outside expert to guide the parties to a great solution:

If I were allowed to choose a path forward I would want to re-boot whatever process is currently underway. My strong sense is that a whole lot of people have preconceived and conflicting notions about what the proper end-game should be for the hospital. What’s needed is an independent third-party subject matter expert (probably from outside of town). This person would need to have expertise in solving hospital financial problems AND also have the ability to act as a mediator. The person would need truly to have an open mind about where we will end up, and the person would need to be trusted enough to engage in shuttle diplomacy among the many groups. If the hospital is going to end up in a place where all or most of the constituent groups are going to be happy, I think it will need to be an outside person who guides us there.

Since then, the Mayor has sent a letter to the Metro Council saying that she wants to “reset” the process and find a solution by the end of 2018. This is a good first step…but doesn’t guaranty success. Here are some of the ingredients that I think it would take to find a good win-win for indigent medical care in Nashville, Meharry, NGH, and the broader community:

  • Everyone must keep an open mind about what a solution looks like. Everyone must keep an open mind. That’s not “everyone else”…it’s “everyone.”
  • I don’t believe a process led by the administration will succeed. I don’t believe a process led by an administration consultant will succeed. I don’t believe a process led by Meharry will succeed. I don’t believe a process led by NGH will succeed. At this point, I think the right person is an independent third-party subject matter expert (probably from outside of town) with expertise in solving hospital financial problems AND also have the ability to act as a mediator.
  • When both the administration and the majority of Council members voted last summer to keep the hospital’s annual operating budget at $35 million, Meharry prudently interpreted that as a shot over its bow that NGH was becoming even less stable. Remember, some Council members pushed to fund the full $55 million requested budget. That effort failed. As a backstop, I tried to get another $5 million added to the budget. That effort failed. In this context, Meharry is entitled to have self-interest as one of its many motivations. Also, expect Meharry to push hard for more control about what happens in the hospital (a building that Meharry owns with a lease to Metro that is ending in another 6 years). They can’t be faulted for this.
  • On the issue how public the process is, I think that there simply isn’t a way to get this to the finish line with a good result and have the entire process be public in real time. And there is no legal requirement for this. Certainly, the Hospital Authority and Council members are required to deliberate publicly. My sense is that parts of a successful process would have to include private conversations with the non-government parties that are involved. Obviously, this has to be balanced with having full transparency as required by law when government officials are involved.
  • I have mentioned to multiple parties involved that I think there is another possible ingredient to a long term solution. Significant development is knocking on the door of the Meharry/Fisk neighborhood. If there were ever a place for a traditional economic redevelopment district, it is in the immediate neighborhood of the hospital. I think there is a way to make sure the universities are the primary beneficiaries from the rise in real estate values that is coming soon to the area.
  • The final ingredient I will mention is about process. Whatever process evolves to find a solution will need to be one that is trusted so that not every single party feels like they have to personally participate. Just from the Council, there are at least 5 or 6 perspectives about how to approach hospital issues. The Hospital Authority has at least 2, maybe 3, distinct perspectives. This is why I think it will take an independent person or group with no preconceived strategy to guide us all to a true win-win. With the right person and process, this might get down to being an 8 to 10 party negotiation instead of a 50 party negotiation.

I feel somewhat more optimistic (or less pessimistic??) about the prospects for the hospital now that we are hitting the reset button. If we start to see some of these other ingredients, we’ll be on a good path.

TVAR Greer Stadium Report

You can see the full report by Tennessee Valley Archaeological Research here.

There’s a lot to read in the lengthy report. However, toward the end, “TVAR recommends that a portion of the project area be protected…, with no land alterations taking place.” (Report, p. 109) TVAR provides a map at page 110 of the report showing the recommended protected area.

The PDF of the report is locked and I can’t extract the map. You’ll have to check it our yourself. But the protected area includes the west parking lot area (closest to the fort), the playing field (but not stadium area), and the edges around the site.

As we head into 2018…

There are a lot of issues brewing for the Metro Council in the new year. We’ll hit the ground running with a meeting on January 2 that may last until midnight. Here’s my take on a bunch of the hot upcoming issues:

Ft. Negley: I wrote about this back in August. The only new fact since then is that, in early December, we all learned that the preliminary archaeology work showed a high likelihood of human remains on the site. Further results were supposed to be available by the end of December, but I’ve not heard anything further yet.

My prediction is that this project will keep moving in slow-motion with more digging and studying and considering until at least after the expected May 1, 2018, transit referendum. Remember, there is no legislation pending before the Council on this project — there isn’t anything for us to pass or not pass.

Transit Referendum: In the Council’s next several meetings, we will decide whether to put the proposed transit referendum on the May 1, 2018, ballot. The legislation with the referendum language is here. People should realize that the legislation also attaches the full 55 page Transit Improvement Program. This document was first released on December 13 and I do not believe many people have read it yet. Please read it. Unlike a lot of the information that has been available over the last six months, the full Transit Improvement Program is largely spin-free, especially in how it describes the proposed sources and uses of money for transit over the next 15 years.

In the coming weeks, I will put out a more in-depth set of thoughts about the full Transit Improvement Program. I think it is very likely that the Council will approve putting the referendum on the May 1 ballot so that the voters can decide this important issue themselves. Reading the full Transit Improvement Program will help voters make an informed decision.

New Federal Tax Law: I believe that the new federal tax law will impact Metro significantly. The affordable housing industry believes that federal Low-Income Housing Tax Credits (LITCH) will be worth less and, therefore, financing large affordable projects may get more difficult. Article here. Similar, according to the Brookings Institute, financing infrastructure will become more costly for cities under the new tax law. Article here.

I think we will want to reconsider how to approach tax increment financing too. A rough rule of thumb for TIF projects is that the TIF loan might cover anywhere from 4-8% of the total project cost. But, the effective tax rate for most every real estate venture in America is likely going to drop by more than this amount. If real estate projects are about to be roughly 10% more profitable because of tax cuts, it begs the question of whether Metro should offer any TIF at all going forward.

Also, corporate tax rates generally just dropped dramatically. Again, this begs the question of what our incentives are worth now to companies. And it begs the question of whether Metro should offer incentives if we are having to deal with higher financing costs for infrastructure.

I don’t know the answers, but there are two things I feel strongly about. First, this is a developing situation and we may not know the impact on Metro for a few years. Second, I think Metro should proactively figure out how we will be affected and try to stay ahead of the impact.

Nashville General Hospital: My most recent post about this was Nov. 29. That post links to others from the last two years. My thoughts today aren’t much different than they were on Nov. 29. There’s just one thing I would add…

If I were allowed to choose a path forward I would want to re-boot whatever process is currently underway. My strong sense is that a whole lot of people have preconceived and conflicting notions about what the proper end-game should be for the hospital. What’s needed is an independent third-party subject matter expert (probably from outside of town). This person would need to have expertise in solving hospital financial problems AND also have the ability to act as a mediator. The person would need truly to have an open mind about where we will end up, and the person would need to be trusted enough to engage in shuttle diplomacy among the many groups. If the hospital is going to end up in a place where all or most of the constituent groups are going to be happy, I think it will need to be an outside person who guides us there.

Soccer: We all know by now that Nashville was awarded a new franchise. It’s very exciting.

Several important details were left to be dealt with after the franchise was awarded. Most notably, the Council will need to approve (by 27 votes) the demolition of some existing fairgrounds buildings before stadium construction can begin. Like with the administration’s Ft. Negley development plans, I’m going to guess that the 27 vote fairgrounds demolition legislation won’t make it to the Council until after the May 1 transit referendum.

Community Oversight Board: I wrote about this in early November. So far, not enough community-wide consensus-building has been done. I think that needs to happen before moving the legislation forward. I had hoped that Metro would hire Barry Friedman from the Policing Project to moderate a consensus-building process…but that doesn’t seem to have happened. I’m looking to learn more about the status in the new year.

Short-term rentals: In spring and early summer 2017, the Metro Planning Commission unanimously recommended Bill -608 and the Council was about to pass it in June.

Bill -608 got through the Planning Commission unanimously because it was a compromise. It allowed short term rentals in every building in Nashville with more than two units. It allowed short term rentals through all of downtown and the Gulch. It allowed every homeowner in Nashville to host short term guests in their primary residence. The only material trade-off was that we would phase out short term rentals in our traditional interior family neighborhoods with 1 or 2 homes on a lot.

In the second half of 2017, -608 has been re-positioned by the short term rental industry as extreme. I’ve stayed quiet on short term rentals in 2017 (except for a few discrete measures designed to stop cheating cheaters from cheating) and let the debate play out. When it comes time to vote, I plan to hear out my colleagues — especially the district Council members with large numbers of short term rentals — to see if they reach a consensus to move away from Bill -608. I think the majority of district Council members still believe that -608 has a good balance of allowing unlimited Type 1 (owner-occupied) and unlimited Type 3 (investor-owned in multi-unit buildings) short term rentals, allowing all short term rentals downtown and in the Gulch, while phasing them out of our traditional family interior neighborhoods.

Wrap-up: If I have forgotten an important issue, let me know at bob.mendes@nashville.gov. I’ll let you know what I think.

BL -983 about economic incentives

Bill -983 is sponsored by 22 Council members and is set for 2nd reading in the Council tonight. The bill would create new reporting and enforcement mechanisms for economic incentives. I think the motivation behind the bill is great. I think big parts of it are great. But I voted against it in our Budget & Finance Committee last night.

Since the bill has 22 sponsors and passed Budget & Finance last night by a 10-2 vote, I wanted to explain my position against the bill.

The bills has four main components — it requires an incentive recipient to predict in advance of its project the number of jobs that will be filled by Davidson County residents and the wages that will be paid, it requires the predictions to be incorporated into the formal incentives agreement each recipient has with Metro, it requires quarterly reporting after the incentive starts, and it empowers the Council to cancel the incentive if the recipient fails to comply with the predictions.

As things stand today, every incentives recipient has a formal agreement with Metro, and there are different degrees of enforcement or claw backs built into each contract.  Importantly, the Metro Council has to approve every incentives agreement before Metro can enter the agreement.

I am all in favor of standardizing the information we receive before an agreement is signed. I am in favor of continuing to strengthen the enforcement mechanisms in our incentive agreements. However, I don’t think it makes sense to shift enforcement from the executive branch to the legislative branch of Metro government. I don’t think it makes sense to have 40 Council members reviewing quarterly reports and also then deciding whether to pull the plug on the incentive agreement. I think it is much better policy for the Council to focus on our existing power to review and approve all of these contracts before they go into effect.

Nashville General Hospital – Nov. 29 thoughts

Here are some things I think about Nashville General Hospital:

  • I don’t have any idea what is going to happen. It feels like options are narrowing, which is never good.
  • There are too many chefs in the kitchen. I’ve been trying to stay relatively quiet about the hospital because there are already a whole lot of people who are actively pushing various  ideas about how to “save” the hospital. Unfortunately, most of the efforts are uncoordinated and there is not a basic agreement about what “save” means.
  • I am not sure the right chef is in the kitchen, but I can’t tell. Information is too opaque to really tell who is leading, or moderating, or dictating how circumstances are unfolding. It feels like the Hospital Authority and the administration are headed toward a bad place. For you NASCAR folks, think Kyle Busch and Martin Truex at Indy this year.  See time marker 0:25 to 0:35 here.
  • Meharry has lots of leverage in whatever is going to play out here. There’s only 6 years left on the hospital building lease. Do they want to continue in the relationship after that? If so, on what terms? Metro also has lots of leverage because it has money.
  • The Hospital Authority’s request this week for $20mm is not a surprise. Ironically, this is first fiscal year in quite a while where the Hospital Authority accurately predicted its cash needs. They told us all back in May 2017 that they’d need an additional $20mm.
  • It is not just about numbers when we talk about this hospital. As Rep. Brenda Gilmore wrote in the Tennessean a few weeks ago: “For more than 125 years, Nashville General Hospital has provided care to Nashvillians, many of whom would have no other way to get medical attention.” I don’t have the voice or experiences to try to fully describe the implications of her statement. But I know she’s voicing an authentic concern that is as real as the money is.

I could add another dozen bullet points with my thoughts about things that have been announced publicly. But I don’t want to add to the “too many chefs” dynamic. That said, my number one wish this evening is that the Hospital Authority and the administration would find a way to be teammates. If they don’t, I’m concerned that we’re going to end up watching a fiery wreck.

Here, here, here, and here are my previous posts about the hospital over the last few years.

Following up on the community oversight bill on 1st reading…

At our Council meeting on November 7, legislation for a police community oversight board was introduced on first reading. With all the attention earlier this week on soccer, I wanted to do a quick follow-up on this.

I think there is a general consensus that a citizen’s board of some kind is possible in Nashville. In an email to Council members on November 8, the FOP told us: “The Fraternal Order of Police is not opposed to some manner of an advisory board that is compliant with current law.” At the NOAH event on October 29, 2017, the Mayor also said that she would support a community oversight board if it resulted from a discussion among all interested groups. The Mayor also reported that the administration is going ahead and hiring consultant Barry Friedman.

I believe that Mr. Friedman has referred to community oversight boards as “back end solutions” that are used after something bad or allegedly bad has happened. I understand that he prefers to focus on front end policy and training solutions created and adopted by an entire community. I understand that he also thinks that an oversight board can be appropriate at times in some cities.

I am not a sponsor of the current legislation. I had the opportunity to see a draft of the bill before it was filed. Among other things, I expressed concerns about making sure that police officer due process rights are protected appropriately. I shared that, in addition to protecting due process rights, any oversight legislation would have to legitimately respect the magnitude of the job officers do and the risks they take, and not presume bad acts by them. I also expressed concerns about whether enough community consensus-building has been done. I was glad to see that second reading was pushed off to January to allow time for discussion about this.

I am hopeful that Mr. Friedman’s work in Nashville will begin before the end of the year and that his community-led policy-making process involving all of Nashville’s interested government and private groups informs and guides what the Council does with the pending bill.

Soccer thoughts (11/6/2017 edition)

Here’s an update about where I am on my issues. Excuse typos — I’ve been trying to get this out quickly and still get some client work done today.

After Friday (see my thoughts from then), I had several open issues. I appreciate that the administration and team kept working with me through the weekend even when it has looked like they already have the votes to pass the resolution. Some of my last issues have been addressed, and some haven’t. After balancing everything, if the amendments I am offering are included, I am going to vote in favor. Here’s why…

Two important issues are being addressed in last minute amendments that I will introduce at this afternoon’s budget and finance committee meeting. One amendment will say specifically that the team guaranty will cover infrastructure overruns — this is a new clarification. The other amendment will clarify that, if there is ever a new lead investor and they don’t provide an adequate guaranty, it will be considered a breach of the lease.

On the issue of the 10 acres, the team issued a letter over the weekend setting out their vision for having sufficient affordable housing to allow people who work at the stadium to also live at the development. This is as much detail as we are going to get before voting on the financing package. And, regarding the idea of a guaranty from the current owners, that’s not going to happen. Any earlier reporting that the individual owners would provide a guaranty is not accurate. That’s not going to change before we vote.

Here is a quick bullet point summary of changes that I requested that have been made, and those that haven’t been made:

Changes achieved:

  • 10 acres issue: We didn’t know the location of the 10 acres. Now we do.  Also, in its letter, the team described its intention to have housing that is affordable for people who work at the stadium. I intend to do my best to hold them to fulfilling that vision as rezoning and entitlements come back before the Council.
  • Guaranty: The guaranty language has added new specific requirements. The guaranty now specifically requires the $25 million team cash contribution, covering stadium overruns, covering infrastructure overruns. Metro’s cost on the stadium now has a hard cap of $225 million. Having the guaranty cover infrastructure overruns is a late change that will happen in an amendment at my request. This was an important issue to me.
  • Guaranty (future change in lead investor): It will be an event of default under the lease if a future successor lead investor does not provide an appropriate guaranty. This is a very good change.
  • Clarification that the team lease will require rent sufficient to cover not just regular bond payments, but also costs related to issuing the bonds.
  • Clarification that Metro’s obligation to contribute a minimum amount of sales tax toward the bond debt expires after 10 years.
  • Added a definition of what is a “capital expense” under the lease.
  • Added a requirement that there be a fair schedule conflict resolution process in the event of a conflict between a soccer game and another event.
  • Added a requirement that the Council approve building demolition before the bonds are issued.
  • Added a requirement that the Fairgrounds Board approve building demolition before the bonds are issued.
  • Added a requirement that the Fairgrounds Board approve all infrastructure changes, including roads and sidewalks, before the bonds are issued.
  • Clarify that the Mayor may only approve technical changes after the Council has approved if the changes are substantively consistent with the approved legislation.
  • Clarify that adding concerts at the stadium would not impact the Bridgestone Arena’s finances.
  • Provided a parking plan.

Not achieved:

  • 10 acres issue: We have not seen a realistic value of what the 10 acres is worth to the team.
  • Guaranty (current lead investor): There is no formal or informal guaranty. I think the administration would concede that, if MLS fails as a league, Metro is left exposed for the remaining bond costs. Supporters would say several things. They would point out that soccer is super-popular and some other league would take MLS’s place. They would point to the growing popularity of professional women’s soccer and suggest that we will likely end up with a team from that league to help offset costs. But in the end, Metro is exposed if MLS fails.
  • What are terms of other important documents: We have not seen the lease from the Fairgrounds Board to the Sports Authority, or the lease from the Sports Authority to the team. We just have the key financial terms known at this time.
  • No traffic study has been provided. Discussions about sound mitigation in the neighborhood have not happened yet.
  • To me, there are questions about whether the state fair will be permanently displaced by soccer coming to the Fairgrounds. Supporters would say that the Fairgrounds Executive Director says we’ll still be able to accommodate the fair. Supporters are also quick to note that the fair might leave anyway no matter what we do.

At this point, while it’s not perfect, fairly extensive and important changes have been made to improve this deal for taxpayers. If my amendments to get these last few improvements to the guaranty language for taxpayers are passed, I will vote yes.

Soccer thoughts (11/3/2017 edition)

Yesterday evening, the administration sent the Council a Substitute Resolution for the soccer stadium. See here. After digesting where the parties ended up, I don’t think I can vote for it.

I do appreciate that many of my requested changes were made. Unfortunately, the legislation was not improved enough for me to be able to support it. The primary problems continue to be the guaranty language and the 10 acres for private development.

Let’s start with the guaranty language. On October 2, we were told: “The MLS ownership group will be responsible for lease payments…” In the original resolution, it said that “Team owners” would guaranty the lease payments. To me, there was a red flag raised by the fine print in the Intergovernmental Agreement attached to the resolution because it spoke only of a single “Team Guaranty” that has not been provided to us. This suggested to me that no individual owners would be guarantying anything.

Many of my colleagues wanted more details about the identity of the “ownership group” or “owners” that would be responsible if the team or league were to stumble in making payments. With the Substitute Resolution, we know the answer — nobody. There are no individual owner guaranties.

The Substitute Resolution calls for the legal entity that owns the team to provide a guaranty of the lease. If the lead investor for the team ever changes in the future, then Metro would have the right to ask for a guaranty from the new lead investor. But even with this, the legislation does not provide any enforcement mechanism to force a new lead investor to provide a guaranty. From my perspective, this means the guaranty only protects Metro if everything goes well (and therefore we don’t actually need it) and doesn’t protect Metro if things take a bad turn (and we do need the guaranty).

In addition to this issue, the guaranty language in the Substitute Resolution does not cover overruns on the stadium-related infrastructure. I asked to have language added that would protect Metro for infrastructure overruns, but that wasn’t included in the Substitute. Considering that the majority of the overruns for the Sounds stadium were for the related infrastructure, having Metro get a hard cap on these costs was important to me.

About the private development side of this, having the 10 acres in the deal has not been adequately justified. There are not enough details about the proposed affordable housing onsite. There are not enough details about what the land is worth to the team. The Council was provided with the value of comparable nearby vacant land with no soccer stadium on the site. But that wasn’t a helpful data point for me. In the end, if we don’t know what the land is worth to the team, and we don’t know what Metro is getting from the 10 acres, I don’t think I can support this part of the proposal.

Finally, many of you read my initial thoughts a few weeks ago. I have updated that memo with comments to show whether each particular issue was addressed, partially addressed, or not addressed. Here’s that updated memo.

I continue to support the idea of soccer coming to Nashville. Hopefully, it will be with a better financial plan than what has been presented. It doesn’t seem likely, but perhaps there will be more changes or more information between now and when we vote next week.